RETURNING to Harare as Zimbabwe’s President designate Emmerson Mnangagwa declared, “We want to grow our economy, we want peace, we want jobs, jobs, jobs”.
Robert Mugabe leaves a legacy of an independent Zimbabwe in a deep economic crisis. Much remains uncertain as to what a new government in Zimbabwe will look like, and there is sure to be continuity as well as considerable change.
What is clear is that a new administration under Mnangagwa will need to turn the economy around to garner support and legitimacy from the Zimbabwean people.
Zimbabwe’s economic output halved over the period 1997 to 2008, and it has not recovered. With more than 80% of Zimbabweans in the informal economy, and with social and economic resilience undermined by previous crises and decades of mismanagement, the stakes for the new leader are very high.
Reform will be difficult particularly because politically connected elites have acquired businesses through uncompetitive means. They will be reluctant to see significantly more competition. But they will also want an improved economic environment. And there is scope for the people of Zimbabwe to benefit from this.
An important change will be in the prioritisation of economic stability. Mugabe demonstrated that he was willing to make political decisions irrespective of the economic consequences. Mnangagwa is thought to less ideological and more of a pragmatist. For him, delivering economic recovery will be crucial to building political support.
The most pressing fiscal priority is the public wage bill. Employment costs account for over 80% of government expenditure, crowding out spending on social programmes, health, and education. But the fragility of the economy means that reform cannot be fast-tracked. The public wage bill accounts for over 20 percent of GDP and is an essential driver of demand. Public sector workers are also politically influential. Another further priority is the reform of state-owned enterprises that are pressuring the fiscus.
A new administration will need to rebuild confidence. Policymakers have been operating in a low-confidence environment for a long time, but for any meaningful change to take root there has to be trust between the government, businesses, and the people of Zimbabwe.
Businesses and citizens will want to see a plan of action for remonetising the economy. Zimbabwe faces an acute liquidity crisis. A shortage of US dollars and a lack of confidence in government-issued bond notes are testing resilience.Advertisement
The financial system has recovered from a crisis of nonperforming loans – triggered by high debt amassed during the post-dollarisation boom, and weak corporate governance. But the system remains highly fragile and swamped with government debt. Hard cash US dollar deposits fell from 49% ($582-million) in 2009 to just 6% ($269-million) in 2016.